Apple: iPhone 5S Supply May Be an Issue, Say Cantor, Jefferies

By Tiernan Ray

Cantor Fitzgerald and Jefferies & Co. both warn investors today the iPhone 5S introduced at Apple‘s (AAPL) media event on Tuesday could be a slightly cause for concern as regards inventory.

Jefferies’s Peter Misek reiterates his Hold rating on Apple, while cutting his price target to $425 from $450, suggesting that Apple has been having production problems with the fingerprint sensor built into the iPhone 5S:

Our checks indicate that suppliers have started to receive build plan cuts. We think poor fingerprint sensor yields are the cause. The 5s has few changes vs. the 5 and is using the same process node for the A7 app processor. Our checks indicate that the fingerprint sensor yields have been terrible and are the likely culprit for the H2 build plan cuts. We slightly raise our CQ3 EPS estimate from $7.58 to $8.14 (St $7.65) due to higher total shipments based on our sell-through checks (32M vs. 30M prior; St 31M). But our CQ4 iPhone revenue estimate remains ~20% below St.

Misek actually raised his estimate for Apple’s fiscal Q4 ending this month, to $37.74 billion in revenue and $8.14 per share in profit, from a prior $35.67 billion and $7.58 per share. That includes 32 million iPhone units, up from 30 million modeled previously.

But for next year, he models just 147 million iPhones old, below the 162 million he’d been modeling, for $168 billion in revenue and $37.95 per hare in profit, down from his $169.3 billion and $38.78 previously.

Cantor’s Brian White reiterates a Buy rating on Apple stock, and a $777 price target, and he concedes there may have been some supply issues with the 5S because of its complexity:

Given Apple’s history of offering a pre-order period for past iPhones, and our understanding of the complexity around the new flagship feature (i.e., Touch ID) on the iPhone 5S, we believe iPhone 5S supply constraints may have played a role in the company forgoing the pre-order process with the iPhone 5S. That said, both the iPhone 5C and iPhone 5S will be available for purchase at Apple Retail Stores at 8:00 a.m. on September 20.

But he thinks the 5C model looks to be in a better place than the 5 was a year ago in terms of supply:

This morning, Apple’s new iPhone 5C became available for pre-orders in the U.S., China, Hong Kong and across eight other geographies. We believe the bears may view the unchanged delivery times in the U.S. and China as highlighting muted demand; however, we believe more sufficient supply was available for this iPhone launch versus past pre-orders. Monitoring Apple’s U.S. online store since the process began at 3:00 a.m., there has been no change in the September 20 delivery status across the five iPhone 5C color options and four U.S. carriers as of 8:40 a.m. ET. By comparison, the pre- order launch of the iPhone 5 last September (9/14/12) resulted in delivery times expanding to two weeks within the first three hours of the pre-order period. However, we believe the iPhone 5 had significant supply constraints at the launch date last year due to the new aluminum unibody enclosure that was difficult for suppliers to manufacture at first, while our research has not uncovered any supply constraints around the iPhone 5C this year, as we believe the manufacturing process is relatively straightforward given the polycarbonate case.

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There are 16 comments

SEPTEMBER 13, 2013 2:41 P.M.

Ed Carney wrote:

The Iphone 5C is not targeted for China, where phones are saturated and the great race for CHEAP PHONES to the bottom Apple wants NO PART OF. Instead, it is priced to target the fastest growing Mobile segment ALL OVER THE WORLD, that is KIDS 10-18! Look around you, how many kids, very young ones are already using their parents smart phones in restaurant, trains, everywhere, how long do you think they get their own phones in this fast evolving world? Now lets imagine walking into a ATT store in US or China Telecom store in China, the 13 year old girl sees 20 generic and sometimes GIGANTIC Android phones (Add the giant watch too now) and in the corner , she sees a brand new Iphone in 5 colors including PINK. WHICH ONE DO YOU THINK SHE PICKS? Do you think she worries more about the Qualcomm Snap dragon processor or she can get a Pink phone with a Yellow Case? This is Apple's genius and and everybody completely missed it. There were NEVER interested or never will be interested in the great race to the bottom by competing on Price in China!

SEPTEMBER 13, 2013 2:42 P.M.

Ed Carney wrote:

And Peter Misek publish stories about Ipad Mini Supply issues and Iphone 5 issues last december. None turned out to be true and his traget price is wrong every step. So this guy is a second rate analyst with no clue.

SEPTEMBER 13, 2013 2:43 P.M.

WiIliam Monroe wrote:

It seems a little odd that Misek is raising his estimate for Q4, then lowering the price target. Seems blatantly fraudulent to me....the SEC should be all over this sleazebag.

I could go on but you heard enough. How can Tim Cook still be here with iPhone 5C priced so high? How can there be nothing but downgrades? Day after day. Now like last year we begin a 315 point drop. Well at least we can't drop that much next year. But it will. Move over Microsoft you have company. Fire Cook now.

SEPTEMBER 13, 2013 2:50 P.M.

Ron wrote:

We just launched and now we have an inventory problem. Either Apple's Useless PR team address this rumor ASAP or Fire Cook. Apple is the laughing stock of Wall Street now.

SEPTEMBER 13, 2013 2:54 P.M.

Anonymous wrote:

Peter Misek has no credibility!!!!!!!!! He doesn't know what the heck he is talking about. His last supply check turned out to be a total screw up. You think he would learn from his past screw ups. He must be the joke of the supply chain that he is getting his information from. He talks with his other end because his mouth knows better................

It's not a problem as long as Tim Cook gets all the colored Iphones to match his cool shirts every day!

SEPTEMBER 13, 2013 3:05 P.M.

Rajinder wrote:

Apple should buy BBRY and close the office to eliminate competition. This will increase the demand for apple
iphones. Apple can use the business line of blackberry and will be one less to compete to have defense contracts.

SEPTEMBER 13, 2013 3:21 P.M.

Dan Manners wrote:

Peter Misek is the most accurate forecaster I know. He has never ever been wrong. Apple is going to 425. That is it. Oh sorry he is being too generous. Apple down 40 from the high and dropping fast everyday. Tim Cook is hard at work destroying Job's Legacy. The iPhone 5s is not being offered for pre-order? Why do you think that is? Because they are having problems producing them. Misek is a genius. Apple will have more problems then last year.

Why is there only a 5c? Because it is an i5 in a different shell. The fingerprint tech is too hard for Cook to make. Samsung makes 100 phones a year but Apple can't even come out with 1 new one. The 5c is not new. It is the same phone as the 5.

Maybe Cook should take several years to get it right. He has only had 1 whole year of doing nothing to produce one phone. Elron Musk in that time has built the highest tech and best car ever with the best safety record. He built a rocket ship to go to the Space Station, he has built a Solar Company and Paypal. All Cook had to do was make one phone and he is having problems with that. He is a loser. Really. I don't get it.

SEPTEMBER 13, 2013 3:24 P.M.

Dan Manners wrote:

Cook made expensive color phones for kids. What kid would buy a $ 600 phone. Once they get to be teenagers they want the Samsung Galaxy. Tim Cook loves the pink one but I think they are ugly.

Apple will be down below 400 by the end of September. When they announce the supply constraints and low sales, Apple is doomed

SEPTEMBER 13, 2013 3:25 P.M.

jason wrote:

misek is mask, every time said to the apple were wrong, his brain not even better than hi school kids. why the sec not look into him with his friend or partners, he is hiding crook in the centry.

SEPTEMBER 13, 2013 4:38 P.M.

Anonymous wrote:

while i dont' normally boher with these predictions, it seems more credible this time. if you go on Apple's site the 5C are the phones they show you first. this is odd because the 5c is not the flagship phone, the 5s, also higher priced, is. i would expect them to push that. an alternate explanation is that they area pushing the 5C now because it's available earlier for pre-order whereas the 5s is not available until 9/20. still, given the production problems with the 5 last year, it's credibe that the new fingerprint sensor is causing yield issues. these will be worked through.

SEPTEMBER 13, 2013 5:50 P.M.

SHORT Blackberry wrote:

Blackberry headed to $0.00.

BBRY the short of the year. No auction buyers... Misek doesn't even list Blackberry's IP being worth anything after Blackberry is broken up into three sellable parts. Apple's A7 64 bit chip just ate Blackberry's enterprise market. Blackberry is now dead in the consumer and enterprise market. And IBM, Cisco, Oracle, Microsoft do not want Blackberry's network. You've seen what happens when it was down. People went without service for days and days.

Peter Misek should do an unpaid internship with Dumpster Divers Incorporated. That's where he belongs. All the free shoes and ties his heart desire... He loves plaid. Plus he looks great in his plaid suits. And for once he might be onto something. But as an analyst. Ha. A real Detective Clouseau. Not.

SEPTEMBER 16, 2013 12:25 A.M.

One of the Apple Boys wrote:

We just did a supply chain check with our proprietary projective algorithm. Apple will finish the year 29.27% above its closing price on last Friday, at $601 on December 31, 2013 which happens to be the midpoint of the two mentioned predictions. There ya go we're analytical scientists on our street too.

SEPTEMBER 16, 2013 7:09 A.M.

Anonymous wrote:

you can bet on Apple that struggles to keep up with demand, or MSFT or another company that has plenty of inventory in stock

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.